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Unit Trusts and Unit Holders of Unit Trusts

Unit trusts must meet the relevant criteria contained in section 3A(3B) of the Land Tax Management Act 1956 to be considered a fixed trust.

The Land Tax Management Act 1956 requires a trustee to lodge a land tax return, if the land is subject to a trust (Section 12 (1C)). A copy of the trust deed should be lodged with the return.

Fixed trust requirements

The trust deed must provide that unit holders are entitled to a fixed proportion of income and capital distribution from the trust.

The trust deed must satisfy the following ‘relevant criteria’:

the unit holders are presently entitled to all the income of the trust, after the payment of the proper expenses incurred by the trustee in the authorised administration of the trust

the unit holders are presently entitled to the capital of the trust and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust

these entitlements cannot be removed, restricted or otherwise affected by the exercise of any discretion or by a failure to exercise any discretion, conferred on a person by the trust deed

if the trust is a unit trust there must be only 1 class of units issued, and the proportion of trust capital to which a unit holder is entitled on a winding up or surrender of units must be fixed and must be the same as the proportion of income of the trust to which the unit holder is entitled.

Liability of unit holders in a fixed trust

If a trust satisfies the relevant criteria the persons who are beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land.

Under section 25 of the Land Tax Management Act 1956, owners of an equitable estate or interest in land are liable in respect of land tax as if they were legal owners of the land. Owners of an equitable estate in land are treated as secondary taxpayers.

Therefore a unit holder’s interest in the unit trust, who owns other taxable land, or is a special trust, are assessed on the combined value of their interest of the land held in the trust and any other taxable land owned.

They may be entitled to a secondary deduction to prevent double taxation.

All fixed unit trusts must provide details of the unit holders.

Restructure of unit trusts

Unit trusts that do not meet the relevant criteria and are special trusts are able to restructure their trust deed to be considered a fixed trust for future tax years.

The unit trust deed can be amended to become a fixed trust by inserting the relevant criteria as an overriding clause by a Deed of Amendment. It would be preferable if the relevant criteria inserted were prefaced by the word ‘notwithstanding’ or similar to remove any doubt. The amending deed takes effect from the date of execution. Refer to Sayden Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 111.

To ensure the amending deed meets the relevant criteria, it is preferable to send a draft copy to us for review, together with a full copy of the original trust deed if it has not already been supplied. We recommend that you seek professional, financial and legal advice prior to amending your trust deed.

Concessions for family unit trusts

A unit trust that held land as at 31 December 2005 with a value of less than $1 million and satisfies the family requirements may be entitled to a family unit trust concession and be classified as a fixed trust.

The following criteria needs to be met:

The Chief Commissioner of State Revenue is satisfied that at least 95% of units in the unit trust were owned by members of the same family group at midnight, on 31 December 2005. A family group consists of persons:

who are related to each other by blood, as well as adopted children and their spouses

if any of the units are owned by a trustee, the ultimate beneficiary must also be a member of the same family group. This excludes discretionary trusts

Note: If a person holds units as trustee (e.g. as trustee of a complying superannuation trust) and the members of the trust are all members of the same family group, the units will be regarded as being owned by members of the same family group for the purposes of determining whether the 95% test is satisfied.

The trust owned land with a combined taxable value of less than $1 million as at midnight, 31 December 2005

If the trust purchased additional land after midnight 31 December 2005, the combined taxable value of land owned must not exceed $1 million. If the total taxable value of the land exceeds $1 million after the acquisition of additional land, the trust will be assessed as a special trust, for the tax year following the purchase

The unit holders are entitled to a fixed proportion of any distribution of income or capital of the trust made by the trustee, based on the proportion of income or capital units which each person owned in the trust

If any new units are issued, redeemed or cancelled, the trust will continue to be assessed as a fixed trust, provided the proportion of units owned by members of the same family group remains at least 95%. The trust must meet this requirement at all times or it will become liable as a ‘special trust’ for the following land tax year.